Your Best Exit Strategy is Your Growth Strategy!

No doubt about it, a successful company exit starts with being able to achieve an owner’s strategic vision that is realized by executing an effective growth strategy. So what about you? Are you planning on exiting your firm at valuations that provide you with financial security for life?

It’s no surprise that a business owner’s vision is what drives a company’s growth efforts. Strategy and action are what enable this vision. These strategic plans or actions are a portfolio of internal efforts – budgeted initiatives – that guide individual functional areas of an organization – areas such as finance, R&D, sales, marketing, product management, support, and other operational functions. These internal efforts are integrated under one overall program or corporate strategy that the business owner and/or CEO oversee in order to accomplish their vision. In short, a strategic vision and corresponding strategic plan determine what direction a company is taking, as well as actionable plans to enable the vision, assignments or responsibilities for carrying out these plans, and a crisp explanation of why the strategy will be successful.

Often owners and CEOs find it difficult to articulate and implement their vision and strategy. This in turn undermines their desire to consistently grow the business and eventually exit at desired valuations. Why? Because sometimes a complete strategic vision and the plans to make it happen tend to be either too sketchy or too overdone, making it impossible to grasp, since there are just too many components to consider. At other times efforts are not properly communicated, assigned, managed or measured, and accountability is unclear.

We find all too often that owners struggle because they don’t have a working model to capture the essence of their vision, to communicate it, and then to implement a strategy to achieve it. One model that we’ve helped owners implement is described below.

First Step – A Growth Vision and Strategy Development Model
This model is designed to get right to the point of growing a middle-market business. The first step is to create a vision statement – tell employees where they are headed. It is not a simple mission statement meant to show a company purpose. It is not purely a set of objectives. However, it is not a detailed 100-page business plan either. A vision statement is concise and defines what direction the company is going, how it will get there, who is responsible and accountable, why the company excels against competitors, and why it expects to be successful. The best vision statements are about 300-500 words in length and answer four core questions: Where is the firm going? How will the firm get there? What is the competitive advantage? Who is accountable to execute the plan? By first setting a vision, CEOs help their teams to answer following:

  • Where – Clarify market needs and targeted market opportunities;
  • How -Appraise internal efforts and adjust or develop new functional strategic initiatives under one integrated strategic plan led by the business owner and the core leadership team. Determine how a company will go to market and effectively grow sales and market share;
  • What -Determine how the firm excels and what the company’s competitive advantage is;
  • Who -Mobilize, communicate the vision and plan to the employee base. Set priorities and metrics, and identify who is responsible and accountable for executing functional initiatives (and overseeing their corresponding budgets).

Second Step – Bounding and Grounding the Vision
To develop a realistic vision, CEOs need to look hard at the facts in front of them. They need to face reality and proactively deal with it. One has to judge what realities truly “bound and ground” their vision. CEOs need to identify, document, analyze, and fully understand what limits them and what allows them to succeed in their given business environment.
These constraints and enablers can be broken down into internal as well as external limits. Internal limits are those determined by the company itself. External limits reflect the significant forces outside the company, such as funding or financing trends, customer and market trends, regulatory trends, technology trends, competitive position, talent acquisition and retention, etc.
Whatever vision the company chooses to pursue, it needs to understand these bounding and grounding factors. Goals, such as sales targets or EBITDA goals, determine the aggressiveness of the vision.

Third Step – It’s All about Focus and Management Execution
It’s clear that owners who can create a firm that has core operating components and a team that consistently delivers revenue and margin growth creates greater shareholder value—higher exit outcomes or valuations. Strategic and financial buyers are beginning to realize that, when evaluating firms, operational capabilities and intellectual property will be more material in supporting higher valuations than will analysis based simply on financial engineering. In addition to financial value, they seek technology and operating value. They understand that in today’s environment, easily obtained gains are increasingly difficult to find, and financial re-engineering is only short-term and really requires operating abilities to sustain. Simply put, a bounded and grounded company vision and strategy, plus management execution, equal higher valuations.

Mark Gaeto

Managing Director